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Trend, value, quality, carry, sentiment, and volatility... Strength is made perfect in weakness. See the pinned tweet for research summaries.
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7 Mar
1/ In Defense of Troublemakers: The Power of Dissent in Life and Business (Charlan Jeanne Nemeth)

"Consensus narrows, while dissent opens, the mind. Both affect the quality of our decisions. There are perils in consensus and value in dissent." (p. 14)

2/ "A consensus position can sway our judgments even when it is in error, and even when contrary evidence is in our face.

"Persuasion by a dissenter is more indirect, requires more time, and follows a more subtle choreography of argument.
3/ "Dissent (consensus) broadens (narrows) our thinking. We consider more information and more options, we use multiple strategies in problem-solving, and we think more creatively. On balance, consensus impairs the quality of our decisions, while dissent benefits it.
Read 33 tweets
6 Mar
1/ The Mind of Wall Street (Leon Levy)

"In the late 1990s, I knew my bubble had finally come.

"Good times breed laxity, and laxity breeds unreliable numbers, which bring about bad times. This simple rhythm is as predictable as human avarice." (p. 1)

2/ "Regulatory/accounting laxness are ignored when stocks are climbing.

"Analysts tried to explain how they could disparage a stock in private e-mails while maintaining the highest buy recommendations publicly, even as the companies they recommended hurtled toward bankruptcy.
3/ "Companies used accounting trickery to report strong pro-forma earnings right up to the point of defaulting on obligations for lack of cash. After the crash, we saw a parade of accountants who suddenly seem to have found basic accounting very difficult to understand." (p. 1)
Read 117 tweets
6 Mar
1/ Expert Political Judgment (Philip Tetlock)

"What experts think matters far less than how they think. We are better off with experts who draw from an eclectic array of traditions and accept ambiguity/contradiction as inevitable features of life." (p. 2)
2/ "Forecasting exercises' winners and losers are not clustered along left/right partisan lines.

"There is an inverse relationship between indicators of good judgment and the qualities the media prizes in pundits—the tenacity required to prevail in ideological combat." (p. 2)
3/ "Disagreements hinge on hard-to-refute counterfactual claims about what would have happened if we had taken different policy paths and on moral claims about the types of people we should be—all claims partisans can use to fortify their positions against falsification." (p. 4)
Read 75 tweets
4 Mar
1/ The Great Beanie Baby Bubble: Mass Delusion and the Dark Side of Cute (Zac Bissonnette)

"The one thing I remember about Beanie Babies was how they made people feel so warm and fuzzy inside.... Then it just became people who saw dollar signs." (p. 73)

2/ "The collectibles business preyed on all our behavioral fallacies: over-reliance on past performance as a predictor of future returns, inflated concepts of the value of things we own, and our tendency toward movement in herds." (p. 72)

More on this:
3/ "Once people could buy them for $5 and flip them for two to five times as much, the speed of the fad's spread multiplied - because humans have an insatiable need to brag." (p. 91)
Read 18 tweets
3 Mar
New SSRN papers, March 2021
(I haven't read these, but their abstracts look interesting.)

Currency Carry Trades and Global Funding Risk

Term Structure of Equity Yields—A Bottom-Up Approach

Feb 2021 edition
Green and Brown Performances of Mutual Fund Portfolios

What Do the Portfolios of Individual Investors Reveal About the Cross-Section of Equity Returns?
What Drives Closed-End Fund Discounts? Evidence from COVID-19
Read 4 tweets
27 Feb
1/ Red-Blooded Risk: The Secret History of Wall Street (Aaron Brown)

"From 1982 to 1992, rocket scientists hollowed out Wall Street and rebuilt it. Most people, including most people working on Wall Street, didn’t notice the fundamental change." (p. 6)

2/ "Your bets must be as independent as possible.

"Search hard for new things to bet on, unrelated to prior bets. Avoid falling into habits.

"Size bets properly. Don't lose so much that you’re taken out of the game; but be willing to bet big for the right gambles." (p. 7)
3/ "Optimizing requires goals and constraints and requires that the two be interchangeable. One way that can happen is if both are measured in money. It also turns out that any time you use the same units for goals and constraints, you create a form of money.
Read 118 tweets
26 Feb
1/ The Half-Life of Facts: Why Everything We Know Has an Expiration Date (Samuel Arbesman)

"Facts, in the aggregate, have half-lives: We can measure the amount of time for half of a subject’s knowledge to be overturned." (p. 2)

2/ NOTE: While the author acknowledges points brought up by the books below, I think he might not give enough attention to those authors' ideas.

Structure of Scientific Revolutions (Thomas Kuhn)

Science Fictions (Stuart Ritchie)
3/ "Biologists had first visualized the nuclei of human cells in 1912 and counted 48 chromosomes, which was duly entered into the textbooks. In 1953, a well-known cytologist even said that “the diploid chromosome number of 48 in man can now be considered as an established fact.”
Read 56 tweets
13 Feb
1/ Underwater: How Our American Dream of Homeownership Became a Nightmare (Ryan Dezember)

"I’d left town, but I was still sending mortgage payments to Alabama.

"Most people aspire to buy a first home. I spent a decade trying to get rid of mine." (p. 4)

2/ "I tried to sell, but when the housing market collapsed in 2007, the property’s value fell far below the amount I had borrowed.

"I was ensnared despite being a reporter who had made a career writing about the frenzied and doomed real estate market along Alabama’s beaches.
3/ "I never doubted that it would end poorly. I thought I was at the zoo, though, watching some wild behavior from behind a barricade. As it happened, I was standing in the middle of the jungle." (p. 4)
Read 69 tweets
9 Feb
1/ The Art of Non-Conformity (Chris Guillebeau)

"My motivation is to help people challenge authority and live unconventional, remarkable lives. You don’t have to live the way other people expect you to." (p. 4)

amazon.com/Art-Non-Confor… Image
2/ "Most men lead lives of quiet desperation and go to the grave with their song still in them." Henry David Thoreau

"People expect you to behave like they do. If you don’t, they get irritated. It’s as if they're asking: “Everyone else is jumping off the bridge. Why aren’t you?”
3/ "Asking “why?” to everything like a three-year-old is helpful: make sure you don’t jump off the bridge without at least considering the alternatives.

"Halfway through the required courses for graduate school, I realized that 80% of the assignments had little value.
Read 74 tweets
6 Feb
Leverage constraints are an interesting philosophical problem when they're *partially* relaxed.

That prevents an LTCM-type blow-up but also makes leverage a scarce resource.

Some strategies (industry-neutral equity factors) cost more in leverage-units than others (risk parity).
Short-dated bonds have higher Sharpe ratios but also cost more in leverage per sigma-dollar unit (which also suggests the importance of dimensional analysis for this kind of problem).

Tail hedges become more desirable if they recover leverage and allow it to be re-allocated.
Transaction costs are lower for instruments with more sigma-$ exposure per unit of notional leverage.

Unintended bets (currency exposures in foreign equities) become more expensive to eliminate.

Integrating strategies may have an edge over simple mixing.
Read 9 tweets
6 Feb
Worth re-emphasizing: today's market is only one of many possibilities. Most portfolios are not balanced such that they will perform well in all such scenarios.
There a very large value dislocation now that has benefited expensive stocks rather than the ones that have historically performed better.

If that turns around (AND is coupled with a new macro environment), a lot of portfolios could be caught off-guard.
Financial advisors, relatives, and media pundits talk about inflation and deflation, but are they positioning their portfolios to do well if those things happen?

Most have only seen one kind of market and are unable/unwilling to think differently. Do your own research!
Read 5 tweets
5 Feb
"Although Congress allowed penalty-free withdrawals of as much as $100K from retirement accounts last year, only 6% of investors tapped into them.

"Unemployment has disproportionately hit lower-income workers, who are less likely to have a 401(k) plan."

I don't see this widely discussed, but schools seem pretty far behind in math this year. (Pre-calc students are still learning the unit circle in some cases; tests are open-notes and vulnerable to cheating. AP tests were shortened and not implemented well in 2020.)
Families with money are hiring extra academic help... I doubt that the full extent of this will be seen in test scores or college admission statistics for a while yet.

People will say it's unfair, but it was money down the drain for those families. Definitely a complicated issue
Read 5 tweets
29 Jan
I might be missing something here, but the roll returns for silver and gold don't suggest that these assets have been heavily shorted, either today or over the past fourteen years.

Read 4 tweets
28 Jan
1/ Exploiting Closed-End Fund Discounts: A Systematic Examination of Alphas (Patro, Piccotti, Wu)

"We estimate CEF expected returns as a function of the history of premiums and current premium. Previous studies understated the value of this information."

papers.ssrn.com/sol3/papers.cf… Image
2/ "We employ current information to forecast future returns using the parametric model estimated with prior data. By allowing 𝛼𝑖 and 𝛽𝑖 to be freely estimated parameters, we consider valuable information in the premium mean-reversion speeds, which previous studies ignore." ImageImage
3/ "CEF fund type classifications are obtained from Morningstar.

"In 2011, the mean market value of equity was $370 million for domestic CEFs, $336 million for foreign CEFs, and $140 million for miscellaneous CEFs." ImageImageImage
Read 18 tweets
28 Jan
Can WSB control enough capital to create volatility in the commodity and currency markets?
Interesting: I was called a 'geeza' and unfollowed after posting this poll
There is an interesting movement in politics... what something means no longer seems to be tied to what the author but to the reader. (This leads to a statement being labeled as offensive due listeners' perception rather than the speaker's intent.)
Read 7 tweets
28 Jan
1/ The Go-Go Years: The Drama and Crashing Finale of Wall Street's Bullish 60s (John Brooks)

“As a people, we would rather face chaos, making potsfull of short term money, than maintain order and sanity by [turning away new business] and profiting less.”

2/ "Interest rates were at near-record highs, strangling new housing construction and making industrial expansion impractical. The dollar was in trouble, worth many billions more than the national gold hoard. One hundred or more Wall Street brokerage firms were near failure.
3/ "In May 1970, an equally-weighted portfolio was worth half of what it would have been worth at the start of 1969.

"The high flyers that had led the market of 1967 and 1968—conglomerates, computer leasers, far-out electronics companies, franchisers—were precipitously down.
Read 8 tweets
26 Jan
Paper 1 (abstract): Based on lots of assumptions and this particular data set, we find that lockdowns don't work.

Paper 2 (abstract): Based on lots of other assumptions and a different data set, we find that lockdowns do work and strongly recommend them as policy interventions.
Paper 3 (abstract): Based on our own arbitrary criteria, we find that lockdowns may have been somewhat effective but were not worth the cost.

Paper 4 (abstract): We find that lockdowns were somewhat effective in saving lives and strongly recommend them as policy interventions.
Read 4 tweets
26 Jan
For the record, stocks with high short interest typically have poor returns... the past year has been an exception to the rule.

Why Do Short Interest Levels Predict Stock Returns?

The Loan Fee Anomaly: A Short Seller's Best Ideas
Borrowing Fees & Expected Stock Returns

Short-Selling Risk

Why Do Price & Volatility Information from the Options Market Predict Stock Returns?

Term Structure of Short Selling Costs
Read 4 tweets
25 Jan
GME Jan 2022 80 strike
call: $36.00 mid
put: $47.50 mid

BBBY Jan 2022 32 strike
call: $10.45 mid
put: $11.94 mid
Read 8 tweets
24 Jan
Given two possibilities,
A. Factor death (zero expected returns)
B. Factor reversion (high expected returns)

What could help in either scenario?

Initial thoughts:
* Better execution
* Less aggressive trading
* Thoughtful turnover management
* Harvesting tax losses
* Lower AUM
Applications might not be as obvious as they seem.

For example, long-dated options have optically high spreads but reduce the need for aggressive vol targeting when it's most expensive to trade the underlying. They also make it possible to rebalance into dislocated assets.
Momentum can become much lower turnover and more tax efficient when rebalanced differently:

Implementing Momentum: What Have We Learned?

Shorting is more tax-efficient than it looks:

Taxes, Shorting, and Active Management
Read 9 tweets
23 Jan
One way to be a liquidity provider is to be an endowment: no leverage and infinite time to wait for convergence.

Another is to be simultaneously diversified/hedged, such that divergence has a payoff and allows you to hold on to convergence trades with very high expected returns.
Read 4 tweets